i'm thinking this has something to do with the environment your window manager is setting up for you. i'm having the same problem now and haven't yet figured out the root cause.
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Eric JohnsonJan 4 '11 at 15:27

I think the terminal program usually asks the parent process what directory is the current working directory. I have this problem with xterms launched by keyboard shortcut from the window manager. It doesn't happen with gnome-terminal and it doesn't happen if I start in xterm from the command line. But I haven't figured out a solution to this...
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Eric JohnsonJan 4 '11 at 15:45

@SIDD: This sounds more like a bug report (it should be your home directory, unless it has been intentionally changed. Please file a bug on Launchpad. How are you starting the Terminal when you see the issue? What version of Ubuntu. Is it a key-sequence (eg. Ctrl-Alt-t)? Is it a menu? Is it something else? BTW, just typing cd on its own without any arguments should take you to your home directory—if that's not working, it could be indicative of the problem. Please include this in the bug report and link the bug number back here to help other people that are following along.
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sladenFeb 5 '12 at 19:10

It may worth to note that ~ is the abbreviation for your home dir.
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Javier RiveraAug 6 '10 at 16:43

1

I verified that terminal was opening into root directory - "pwd" command. But after appending "cd"(changes directory to home) to .bashrc, as indicated by Tommy did the job. Thanks.
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SIDDAug 6 '10 at 16:50

It is /home/<username>. I verified using "cd" command which always sets current working directory as home of that user.
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SIDDAug 6 '10 at 17:13

Then there is something else odd there. If the home directory is set correctly for the user, you should not need to manually set your home directory in the .bashrc file to automatically start in your home directory.
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txwikingerAug 6 '10 at 17:32